[QUOTE=ewmayer;144130][[b]My Comment:[/b] I think "silver lining" is a much too precious-metallic metaphor here - "rock bottom" would seem to fit the situation much more nicely. [Or perhaps "more gneissly"?][/QUOTE]

I commend you for the "gneiss" way you put this, rather than simply saying that it's a load of "schist".

Norm

[QUOTE=Spherical Cow;144131]I commend you for the "gneiss" way you put this, rather than simply saying that it's a load of "schist".[/QUOTE]

Regular readers will know that, while they can take it for granite that I will endeavor to leave no pun left behind, they should always take my geologic plays on words with a grain of [ba]salt.

Ernst, your punnitude rocks!

[QUOTE=jasonp;144152]Ernst, your punnitude rocks![/QUOTE]

Thank you for you most magma-nimous praise, sir!

Caution Ahead- Falling Metamorphic Metaphors...

[QUOTE=Spherical Cow;144168]Caution Ahead- Falling Metamorphic Metaphors...[/QUOTE]

Mortgage Market Monster Metaphoric Metaphor Meltdown Madness.
[QUOTE]Look what you've done! I'm melting! melting! Oh, what a world! What a world![/QUOTE]

Attack of the Bulltards! EOY Predictions
 

Tonight`s "Special Guest Bulltard" on PBS` [i]Nightly Business Report[/i] was S&P Chief Market Pumper, erm, I mean "Strategist", Sam Stovall. He made a number of rosy predictions about how October has historically been a good month for the major indices, and that he expects the S&P500 to finish the year around 1250, i.e. roughly 10% above today`s close. He also suggested several equity categories he expects to lead the 4th-quarter recovery, including consumer discretionaries and technology companies.

Allow me to interject a noisy "WTF?" and make some slightly more bearish 4th-quarter predictions:

- Consumer discretionaries will suck, because consumer discretionary spending is falling off a cliff;

- Tech will suck, because exports will decline due to developing recessions in most of the rest of the world, and because tech leaders like Apple and Google are heavily dependent on consumer discretionary spending;

- Historical average behavior can be thrown right out the window when it comes to what`s going on currently;

- Major indices will have at least one halfway-decent rally, but will finish the year lower than currently: Dow < 10000, Nasdaq < 1800, S&P500 < 1000.

Yes, bearish sentiment is growing.

I'm going to try timing, to jump in at the exact peak of bearish sentiment! :grin: None of that party-pooper dollar-averaging for me, nosirree!

First, today's macroeconomic news headlines:

[url=http://www.bloomberg.com/apps/news?pid=20601103&sid=aoP8qTrIF8Gs&refer=news]U.S. Stocks Drop as GE Estimates Cut, Manufacturing Index Trails Forecast[/url]: [i]U.S. stocks fell and the Standard & Poor's 500 Index extended its worst monthly drop in six years as General Electric Co.'s profit estimates were cut and an industry report showed manufacturing contracted more than forecast.[/i]

What's bad for GE means "buying opportunity" for Warren Buffett:

[url=http://money.cnn.com/2008/10/01/news/companies/buffett_ge/index.htm]Warren Buffett to invest in GE[/url]: [i]Conglomerate will raise $12B through stock sale, gives Buffett's Berkshire Hathaway option of investing $6B in firm.[/i]


[url=http://money.cnn.com/2008/10/01/news/companies/autosales/index.htm]U.S. auto sales plunge[/url]: [i]Ford down 35%, Toyota down 32%, GM down 16%; auto makers say credit squeeze, customer worries led to sharp drops in sales.[/i]

[url=http://www.bloomberg.com/apps/news?pid=20601103&sid=aRIb6cEbuI_I&refer=news]Ford Motor's September U.S. Auto Sales Tumble 35% as Truck Demand Slumps[/url]: [i]Ford Motor Co., the second-largest U.S. automaker, said its U.S. sales fell 35 percent in September, the 22nd decline in the past 23 months.[/i]

[b]My Comment:[/b] Note that this is despite steadily falling oil prices, and with gasoline off roughly 20% from its midsummer high-water mark.


[url=http://www.bloomberg.com/apps/news?pid=20601109&sid=adjHB.7sfLDA&refer=news]Lehman's Hedge-Fund Clients Left in Cold as Prime-Broker Assets Are Frozen[/url]: [i]Lehman Brothers Holdings Inc.'s bankruptcy probably means the end of hedge-fund manager Oak Group Inc. after 22 years in business.[/i]

--------------------------

[b]Bailout Plan Update:[/b]

[url=http://www.bloomberg.com/apps/news?pid=20601103&sid=ab5vK0Qkm20Q&refer=news]Senate Votes Tonight on $700 Billion Bank Rescue With More FDIC Protection[/url]: [i]The U.S. Senate set a vote for tonight on a $700 billion financial-rescue plan, tying it to an increase in bank-deposit-insurance limits and tax breaks to win support from Republicans.[/i]
[quote] Oct. 1 (Bloomberg) -- The U.S. Senate set a vote for tonight on a $700 billion financial-rescue plan, tying it to an increase in bank-deposit-insurance limits and tax breaks to win support from Republicans.

The Senate agreed to vote on the legislation along with the measure temporarily raising the limit on federal deposit insurance to $250,000 from $100,000. That increase was proposed by Republicans critical of the plan authorizing Treasury Secretary Henry Paulson to buy troubled debt from lenders, which was rejected by the House two days ago.

Also linked to the legislation is a two-year extension of tax breaks that will save individuals and corporations about $149 billion over the next decade, another move popular among House Republicans. Two-thirds of House Republicans and 40 percent of Democrats defeated the bailout plan on a 228-205 vote. President George W. Bush and Senate leaders vowed to revive the legislation.

The Senate is expected to pass the bill, with most Democrats and Republicans behind it. There's also increased optimism the House will go along, as pressure mounts on lawmakers to help restore confidence in the banking system.

European Central Bank President Jean-Claude Trichet said U.S. lawmakers must pass the measure to shore up confidence in the global financial system. European governments have helped rescue at least five banks since Sept. 28, with Trichet taking part in talks to save Belgium's Fortis over the weekend.

``It has to go, for the sake of the U.S. and for the sake of global finance,'' Trichet said in an interview in Frankfurt with Bloomberg Television late yesterday. ``I am confident, but of course it is the decision of the U.S. Congress.''

Sentiment Swings

After a week-long torrent of calls and e-mails from angry voters opposing the rescue package, the tide turned after markets plunged on Sept. 29 in response to the House vote.

``Over $1 trillion worth of market value was wiped off the books by the stock market drop,'' said Senator Robert Bennett, a Utah Republican. ``It is ordinary people looking at ordinary pensions, with their ordinary Main Street kind of 401(k) plans, who lost that $1 trillion. And they lost it in a matter of minutes.''

Texas Republican Representative Joe Barton's office said constituent calls and e-mails swung to as much as 70 percent in favor of congressional action, after having been overwhelmingly against a taxpayer rescue of Wall Street.[/quote]
[b]My Comment:[/b] So the Republicans are using this as leverage to get one of their pet ideologies into the bill, tax breaks for corporations who are already paying far less than their fair share of taxes. Trichet et al should put their money where their mouths are or STFU, as Europe had no small number of bubble housing markets themselves [UK, Spian, etc]. And it looks like Monday's market tantrum on Wall Street garnered the desired "fear" votes Bush, Paulson and Bernanke were hoping for.


[b]A few lawmakers "get it", but I fear not enough:[/b]

[url=http://globaleconomicanalysis.blogspot.com/2008/10/rep-brad-sherman-on-bailing-out-foreign.html]Rep. Brad Sherman on Bailing Out Foreign Investors[/url]
[quote]Rep. Brad Sherman, D Californiai [i][Speaking to CNBC`s Larry kudlow][/i]:

Larry I am glad you have a few seconds to talk to someone who voted against this bill. I am not changing my mind. I want to thank my colleagues who stood up to the purveyors of panic and voted against a very bad bill and voted with 400 eminent economists including three Nobel laureates who wrote to us and said don't panic, don't act hastily, hold hearings, work carefully. The fact is Larry if you read this bill, even you would have voted against it.

It provides hundreds of billions of dollars of bailouts to foreign investors. It provides no real control of Paulson's power. There is a critique board but not really a board that can step in and change what he does. It's a $700 billion program run by a part-time temporary employee and there is no limit on million dollar a month salaries.

Larry Kudlow:

Let me just ask you one question. I think you are referring to foreign banks headquartered in the United States. I do not see how foreign investors get bailed out.

Rep. Brad Sherman:

Larry you have to read the bill. It's very clear. The Bank of Shanghai can transfer all of its toxic assets to the Bank of Shanghai of Los Angeles which can then sell them the next day to the Treasury. I had a provision to say if it wasn't owned by an American entity even a subsidiary, but at least an entity in the US, the Treasury can't buy it. It was rejected.
[b]
The bill is very clear. Assets now held in China and London can be sold to US entities on Monday and then sold to the Treasury on Tuesday. Paulson has made it clear he will recommend a veto of any bill that contained a clear provision that said if Americans did not own the asset on September 20th that it can't be sold to the Treasury.
[/b]
Hundreds of billions of dollars are going to bail out foreign investors. They know it, they demanded it and the bill has been carefully written to make sure that can happen.[/quote]

[QUOTE=ewmayer;144224]
[url=http://www.bloomberg.com/apps/news?pid=20601103&sid=ab5vK0Qkm20Q&refer=news]Senate Votes Tonight on $700 Billion Bank Rescue With More FDIC Protection[/url]: [i]The U.S. Senate set a vote for tonight on a $700 billion financial-rescue plan, tying it to an increase in bank-deposit-insurance limits and tax breaks to win support from Republicans.[/i][QUOTE]Also linked to the legislation is a two-year extension of tax breaks that will save individuals and corporations about $149 billion over the next decade, another move popular among House Republicans.[/QUOTE]

[b]My Comment:[/b] So the Republicans are using this as leverage to get one of their pet ideologies into the bill, tax breaks for corporations who are already paying far less than their fair share of taxes. Trichet et al should put their money where their mouths are or STFU, as Europe had no small number of bubble housing markets themselves [UK, Spian, etc]. And it looks like Monday's market tantrum on Wall Street garnered the desired "fear" votes Bush, Paulson and Bernanke were hoping for.


[b]A few lawmakers "get it", but I fear not enough:[/b]

[url=http://globaleconomicanalysis.blogspot.com/2008/10/rep-brad-sherman-on-bailing-out-foreign.html]Rep. Brad Sherman on Bailing Out Foreign Investors[/url][QUOTE]The bill is very clear. Assets now held in China and London can be sold to US entities on Monday and then sold to the Treasury on Tuesday. Paulson has made it clear he will recommend a veto of any bill that contained a clear provision that said if Americans did not own the asset on September 20th that it can't be sold to the Treasury.[/QUOTE][/QUOTE]I'm not sure that the assets even need be transferred to U.S. companies or onto U.S. soil. It looks like the Federal Reserve Bank and the U.S. Treasury are OK with applying money to foreign entities and branches of U.S. entities on foreign soil.[QUOTE=only_human;143353][URL="http://www.reuters.com/articlePrint?articleId=USN2146972020080921"]UPDATE 2-Paulson: Foreign banks can use US rescue plan[/URL][QUOTE]"... if a financial institution has business operations in the United States, hires people in the United States, if they are clogged with illiquid assets, they have the same impact on the American people as any other institution," Paulson said on ABC television's "This Week with George Stephanopolous."[/QUOTE]
[QUOTE=only_human;143405][URL="http://www.federalreserve.gov/newsevents/press/bcreg/20080921a.htm"]http://www.federalreserve.gov/newsevents/press/bcreg/20080921a.htm[/URL][QUOTE]In addition, the Board also authorized the Federal Reserve Bank of New York to extend credit to the London-based broker-dealer subsidiaries of Goldman Sachs, Morgan Stanley, and Merrill Lynch against collateral that would be eligible to be pledged at the PDCF.[/QUOTE][/QUOTE][/QUOTE]
This two-year extension of tax breaks could make things difficult at the least for Obama's platform as I believe that letting these tax breaks for corporations expire is part of how his proposals would be funded.

"20% More Wasteful!" Bailout Bill Passes Senate
 

[url=http://globaleconomicanalysis.blogspot.com/2008/10/bailout-bill-passes-senate-75-to-24.html]Bailout Bill Passes Senate 75 to 24[/url]
[quote]Tonight the Senate passed the most fiscally reckless bill in history. We fought a tough fight and even won a few battles but the reality is the war is likely over. A fear mongering campaign by Bush, Paulson, CNBC, CNN, and Bloomberg accompanied by a 777 point plunge on the Dow probably likely sealed the fate.

The media blitz was the financial equivalent of Bush's "Mushroom Cloud" speech that suckered Congress into a needless war in Iraq. The US has wasted a trillion dollars in Iraq for nothing, and now the Bush Administration with cooperation from Congress is going to waste $250 billion to $700 billion more at a bare minimum fighting an economic slowdown that is coming no matter how much money is wasted. I suspect the total will $trillions before all is said and done.

This is what we were up against.

* President Bush
* Treasury Secretary Paulson
* House Speaker Nancy Pelosi
* House Finance Chairman Barney Frank
* CNBC Cheerleaders
* CNN Cheerleaders
* Bloomberg Cheerleaders
* Prime Minister Gordon Brown
* ECB President Jean-Claude Trichet [/quote]


[url=http://money.cnn.com/2008/10/02/news/economy/jobless_claims/index.htm]Jobless claims at 7-year high[/url]: [i]Initial filings for unemployment rise more than expected to highest level since September 2001.[/i]


[url=http://money.cnn.com/2008/10/01/news/economy/mortgage_plunge/index.htm]Mortgage applications plunge[/url]: [i]In yet another sign of the economic crisis, applications down 23% in the week ended Sept. 26.[/i]


[url=http://globaleconomicanalysis.blogspot.com/2008/10/major-insurance-company-on-verge-of.html]Senator Reid: Major Insurance Company on the Verge of Bankruptcy[/url]: [i]The cost to protect against a default by Hartford Financial Services Group Inc., Prudential Financial Inc. and MetLife Inc. rose to record levels on speculation that the turmoil in financial markets may be spreading to insurers.[/i]


[url=http://www.bloomberg.com/apps/news?pid=20601039&sid=aguOUred8Bjg&refer=home]Bloomberg Commentary | If There Must Be a Bailout, Here's How to Do It: Jonathan Weil[/url]
[quote]The fatal flaw in Treasury Secretary Hank Paulson's $700 billion bailout plan was that it wouldn't fix the problem: Too many important financial institutions don't have enough capital.

If the government wants to save dying banks before they take others down with them, it should choose the clean and direct path: Inject capital into them. Take ownership stakes in return. And, where that's not feasible, seize them and sell their assets in an orderly way, just as the Resolution Trust Corp. did after the 1980s savings-and-loan crisis.

Only after a company's shareholders and debtholders have been flattened should taxpayers take a hit. And for a $700 billion investment, U.S. taxpayers should get a lot more in return than a gargantuan pile of toxic waste.

For that much money, at yesterday's prices, the government could buy 23 of the 24 banks in the KBW Bank Index, including Bank of America Corp. and Wells Fargo & Co. And it still would have money left to buy a stake in JPMorgan Chase & Co., the largest company in the index.

Infusing capital directly, though, was too simple for Paulson. It lacked subterfuge. He decided the way to save the financial system from the evils of structured finance was through more structured finance.

Instead of asking Congress to let Treasury recapitalize needy banks, he proposed buying some of their troubled assets at above-market prices. This would have let other banks create phony capital by writing up the values of similar assets on their own balance sheets, using Treasury's prices as their guide.

In short, Paulson's plan was one part robbery (with the banks doing the robbing) and one part accounting sleight of hand. No wonder House members rejected it. [/quote]


[url=http://money.cnn.com/2008/10/01/news/economy/mark_to_market/index.htm]The accounting rule you should care about[/url]: [i]The battle over how banks and Wall Street value their assets is at the center of credit crisis and the debate over the $700 billion bailout plan.[/i]
[quote]The one fact everyone agrees on is that the current financial crisis centers on trillions of dollars worth of mortgage loans that were packaged together into financial instruments known as mortgage-backed securities, or MBS. Those securities were purchased by banks and Wall Street firms.

But as home prices started to fall and foreclosures rose, the value of these securities plunged. Today, there is almost no market for the securities.

This is why Treasury Secretary Henry Paulson and Federal Reserve Chairman Ben Bernanke proposed that the government buy the securities. The hope is that doing so could restart the MBS market at something well above the current fire sale valuations and that the government could hold the securities until the market improves.

Some advocates of the plan argue that taxpayers will be able to eventually make money if the government sells the securities at a higher price down the road. But the more immediate hope is that banks and Wall Street firms, freed from the toxic loans on their balance sheet, will start lending again.

Still, others contend that it was not real financial losses from these securities that led to the credit crunch as much as it was an arcane accounting rule known as "mark-to-market."

Mark-to-market means that companies have to report what the fair value of their investments were if they sold them at the current time.

In recent years, firms were required by the Securities and Exchange Commission and the Federal Accounting Standards Board to use mark-to-market valuations for all the MBS on their books.

As more subprime borrowers started to default on their loans, that quickly eroded the value of many MBS pools. Major banks and financial firms around the globe have taken writedowns topping $500 billion in the last year, as a result.

For this reason, some have argued that fixing the rule would solve the credit crisis.[/quote]
[b]My Comment:[/b] Perhaps there is no market for these securities because they are widely - and correctly - perceived as being next to worthless at maturity, if the rate of defaults of their backing mortgages continues as expected. But - does this mean I get take my 401(k) and stock portfolio and "mark it to fantasy", as well? I just might be able to support the "King Henry" Paulson plan if it included that provision.